(Prosperity)
Define: Stocks
It turns out the Dutch are good for more than tulips, chocolate, and a hazy but really good time in Amsterdam.
Probably the most iconoclastic building associated with finance, at least in the US is The Stock Exchange on Wall St. in New York City. Wall St. gets its name from the wall where the original Dutch settlers of New York City, then New Amsterdam, swapped and traded their goods. That it is a Dutch site isn’t a fluke. Economic historians believe that the first company in modern(ish) history to issue shares of stock was the Dutch East India Company, in 1606. Pooling capital and resources to finance growth, for the Dutch through shipbuilding, led to the Netherlands becoming a naval superpower wielding much colonial might.
Since then, business has been booming. (On Tuesday, April 1, the New York Stock Exchange saw 4,808,395,000 shares of stock traded in its daily volume!) For the last five hundred years, companies have been releasing shares of ownership to raise money, in a process called equity finance. The other way, debt financing, involves issuing bonds or borrowing money from a bank. An important difference between stocks and bonds is the level of risk – with stock, your investment is not guaranteed to retain the same value. This is where the no guts, no glory theory comes into play. While the risk is greater with stocks, the reward is also greater. According to Forbes.com, over the long term, investments in stock have had greater returns than any other security.
“Stock” refers to a security representing ownership in a company and a right to the assets and revenues of that company. Originally, this would get you an actually paper stock certificate, but now everything is filed electronically at brokerage houses (stock held at brokerages are referred to as being held in street name).
Simply owning stock – being a shareholder - won’t get you all the perks of the board of directors, a corner office or access to the supply closet, but it does give you the rights to a dividend - payments on earnings made by the company to shareholders. Dividends usually come as either cash (the check is in the mail), or stock in the company or a subsidiary.